Purchase – or refinance – before the rules change in January

If you’re looking to buy with a down payment of more than 20 percent, or if you’re considering refinancing, then you might want to do so before January 1st.  Why?  On October 17, the Office of the Superintendent of Financial Institutions (OSFI) released new guidelines.  Starting in the new year, a new  mortgage stress test will be applied to all new mortgages – and not just those mortgages that require mortgage insurance (where your down payment is less than 20%).

The so-called “stress test” is supposed to protect you in case interest rates rise down the road. Lenders will have to qualify all new conventional mortgages at the greater of the Bank of Canada’s five-year benchmark rate (currently 4.99%) or the contracted rate plus 2%. So if your 5 year fixed rate is 3.29%, you will be qualified as if it was really 5.29%.

If you want to buy a home with more than 20% down…

Your payments will always be based on your actual, contract rate, so this new rule isn’t costing you more.  But, the new rule might change how much mortgage you qualify for.  You may need to look at a less expensive home, save up for a larger down payment, or reduce other debt you have, like car loans or credit card balances. Or we can take a look at a variable rate mortgage that lowers your qualifying rate (if the rate plus 2% is less than the benchmark 4.89%) and has the option to convert to a fixed mortgage.

If you want to refinance to pay off debt or buy an investment property…

Here too, your actual mortgage payment will not be affected. But the new rule could slow you down by making it more difficult to qualify for your refinance. You may need to wait and accumulate more equity, or look at a lower-rate variable mortgage. If that refinance is important to securing your own financial health, get in touch ASAP!

If your mortgage comes up for renewal next year…

This more stringent qualifying requirement will not apply to mortgage renewals. If you go shopping for a better deal with a new lender, however, that will require that you re-qualify… and the new rule will kick in for you too.  Because of this, it’s still is very important that we review your options together.

What can you afford?

Here’s an example of a new mortgage qualifying for purchase with 20% down:

Get in touch now – as you have the rest of 2017 to get in under the old rules. I’m here to work with you early in the process to make sure you’re fully prepared for your purchase or refinance. I also have access to non-federally regulated lenders that do not fall under this new guideline, which might be a good option.  I’m always here to answer your questions, so feel free to call or email at any time!

For more information about down payment rules, check out my post here.

For other mortgage planning articles in my blog, click here for the list of posts.

Photo [c] Tevarak Phanduang for vecteezy.com